Two would-be developers of the SoccerCity project proposed for a special election later this year are confronting legal challenges in New York, where an oil and gas venture for which they serve as corporate officers is accused of breaching an agreement with shareholders.

Michael Stone and Nick Stone, who are not related, are two of the driving forces behind FS Investors, the La Jolla company that wants to transform the city-owned Qualcomm Stadium site into a $4 billion soccer stadium, commercial, retail and parkland destination. They say the New York legal action is a nuisance lawsuit that will go nowhere and has no bearing on their proposal in San Diego.

FS Investors qualified a citizens’ initiative for a public vote on its sweeping redevelopment plan earlier this year. The City Council is scheduled to consider calling the November special election at its meeting on Monday.

Both Michael Stone and Nick Stone serve on the board of directors of AusTex Oil Limited, an oil and gas exploration and production company now defending a lawsuit filed in March by minority shareholders Weider Health and Fitness and Bruce Forman. Weider is seeking $3.8 million in damages, and Forman is seeking $377,000.

Nick Stone, who has served as the chief spokesman for FS Investors since the company unveiled its SoccerCity vision early this year, said the lawsuit lacks any validity.

Nick Stone was co-managing director of AusTex until he stepped down in May, citing his SoccerCity efforts.

"Unfortunately, meritless lawsuits happen every day in America – and this is certainly one of them,” Nick Stone said by email. “Neither Mike nor I are named in the suit, we have a minority stake in the company and are in the minority on the board. Most importantly, this has absolutely no bearing on SoccerCity and what our group is proposing to do, which is to transform a largely abandoned taxpayer liability into something that all San Diegans can be proud of.”

The annual report for AusTex — based in Tulsa, Oklahoma — says the two men own about 10 percent of common stock, and 80 percent of non-voting preferred stock.

The suit accuses AusTex of failing to abide by terms in an agreement with shareholders. Specifically, the plaintiffs say AusTex failed to notify them in writing that two of three key people stopped serving as officers or employees of the company. The departures were a “shareholder redemption event,” meaning it allowed the plaintiffs to cash in their stock at 15 cents per share, the suit claims.

In court papers filed in U.S. District Court in New York, attorneys for AusTex denied the allegations and said the stock-redemption clause in the shareholder agreement had not been triggered by the departures.

“Defendants allege that recovery by plaintiffs is precluded for failure of the occurrence of conditions precedent,” they wrote.

As members of the AusTex board of directors, Michael Stone and Nick Stone each receive six-figure compensation, according to the company’s annual report.

Michael Stone, who is listed as the AusTex non-executive chairman, received $276,152 from the company in 2016, a year in which he attended two of four board meetings. As the co-managing director, Nick Stone was paid $406,176 for the year. He attended all four board meetings.

AusTex reported almost $9 million in losses last year and $19.2 million in 2015 losses. Many oil companies experienced similar losses in recent years as the price of oil declined from a high of more than $100 per barrel.

"These are not cash losses but rather asset write-downs — standard accounting practice anyone in business understands — and are in no way a reflection of the company's prospects,” Nick Stone said. “The fact is, AusTex is well-positioned financially and generates meaningful cash-flow."

AusTex reported a related-party transaction with FS Investors, which received $296,048 for consulting services in 2016 and $320,024 in the prior year, the annual report states.

The company arranged for a $20 million loan in October 2014 and a $17 million payment is due in October, according to a company audit. The company has more than $18 million in cash on hand, including $5.4 million restricted by lenders. AusTex also could be able to restructure the debt before the payment comes due.

Meanwhile, the company stock value has declined in recent years. At the close of 2014, the share price was 13 cents. By New Year’s Eve two years later, the value dipped to a nickel, the annual report to shareholders states.

The San Diego City Council is scheduled to consider the FS Investors request for a special election in November following a presentation to the elected officials at 1 p.m. Monday.

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